Asia’s manufacturing sector has been supplying the world for decades, but the picture has evolved beyond the traditional powerhouses of Japan and China. Asia’s factory footprint has expanded, driven by the success of countries such as India, Vietnam, Indonesia, Malaysia and Thailand – the so-called flying geese of market proximity. The region punches well above its weight in terms of global GDP in consumer electronics, industrial electronics, electric vehicles and semiconductors, according to McKinsey1.
Not only has Asia had to cope with the same challenges as the rest of the world – the Covid-19 pandemic, high interest rates, inflation – but it has also had to deal with an increasingly protectionist and challenging geopolitical landscape. Nevertheless, trade among the Association of Southeast Asian Nations (ASEAN) is forecast to grow by $1.2tn over the next decade, and India’s economy will expand by over $390bn, according to the Boston Consulting Group2.
Tacking to new trade winds
Asia remains an economic bellwether. A 2023 Citigroup report estimated that the region adopts new technologies 8–12 years ahead of the West. Its reputation for innovation formed the basis of the Asia Industrials Summit – a recent gathering organised by Citi Commercial Bank in Singapore, – which brought together a number of influential midcap companies to discuss future trends for manufacturers in the region.
“We see Asia as a time machine to the future,” says Jan Metzger, Head of Citi Investment Banking, Japan, Asia North and Australia, Asia South. “Despite the complications in geopolitics today, it’s easier to do business than ever before. Companies from Asia now have a market that is truly global, and they can target markets all over the world. If you go into the average Asian company, you see a level of entrepreneurship across the business that you don't see anywhere else in the world. It’s an incredibly exciting time.”
Recently, the strongest performing sectors in the region have included automotive, clean energy transition, and the transformation of the industrial space through automation and artificial intelligence. Once associated with high volumes of cheaper goods, Asia is now more than capable of manufacturing high-end components.
Among the companies attending the summit was Beyonics, a precision engineering and manufacturing solutions provider focused largely on the expanding market for medtech and mobility. Headquartered in Singapore, it has factories in Malaysia, Thailand and China. “Asia's business ecosystem thrives on integrated supply chains, robust infrastructure, government support, substantial research and development and a skilled workforce,” says its CEO, Ernest Sebak. “For Beyonics, that means we are in a position to push the envelope for manufacturing tools and processes.”
The backlash against globalisation, triggered by a variety of factors including fears surrounding free trade, immigration, the pandemic and fiscal austerity policies, has led to a subtle reset, with trends such as offshoring and nearshoring creating a global-regional hybrid. Beyonics is one midcap taking advantage of shifting trade patterns and demand.
“We are now seeing developing countries put serious investments into healthcare with home healthcare products and this is driving a lot of the products that we’re focusing on,” says Sebak, “With automotive, the industry is fragmenting into internal combustion engines, EVs, and hybrid combinations including hydrogen because people need cars with alternatives.”
The China Plus One strategy is also driving the growth of new manufacturing regions and trade routes, as companies seek to reduce expenditure and diversify supply chains to make them more resilient amid uncertainty. “Trading patterns are changing. We are seeing interesting new corridors emerge,” says Gunjan Kalra, Head of Citi Commercial Bank, Japan, Asia North and Australia, Asia South. For example, Brazil, which was typically a very strong trading partner for Argentina, now trades more with India and China; the Middle East trades more with Asia than Europe. As a global bank, the emergence of these new international trends is very exciting.”
“Covid was a wake-up call,” says Huaijin Bao, Global Head of Industrials for Citi Commercial Bank. “Every company has had to rethink its supply chain strategy. We still talk about globalisation, but now we see localisation, with companies building plants across the region to be close to the market and save on logistics.”
Asia is no longer an emerging market serving the West, but a force in its own right. Industrial companies are expanding in the region to serve Asian consumers while also planning new manufacturing facilities in the US and Europe to cater to the local markets, and only partially as a hedge against reshoring or nearshoring.
Cross-border success stories
One company capitalising on this metamorphosis is Chinese logistics provider De Well Group, which has offices across Asia, Europe and America. “Compared with a decade ago, globalisation is now characterised by heightened technological integration, complex supply chains, and shifting trade patterns,” says De Well Founder Time Yang. “Asia has shifted from a manufacturing hub to become a key player in global trade. It has allowed us to significantly expand our footprint, especially in Asia-Pacific and North America. Today we serve a diverse client base, including traditional import-export businesses and cross-border e-commerce firms.”
Given prevailing geopolitical tensions and market fluctuations, diversifying supply chains is a way to manage and/or mitigate risk. It is also resilience reimagined as a business opportunity. “If you look at the mid-sized corporates, in particular in Asia, they are very ambitious. So they have to be in the most cost-efficient place,” says Gunjan Kalra. “They have to make sure their supply chains are resilient, and they are doing that proactively, not just within Asia but also outside this with the development of corridors in Latin America and other regions.”
Asia’s advantages continue to multiply. Its economy is maturing, thanks to an increasingly sophisticated digital infrastructure, improving workforce skills and productive trading partnerships. Yet for its midsize manufacturers to maintain their momentum, more investment is needed. “This is an age in which industrial companies can grow incredibly quickly and get huge global relevance super fast,” says Metzger. “We are working with these companies very early on, and supporting their business ambitions from the start of their journey. As they grow, we provide a wider range of products, services and expertise, including investment banking capabilities.”
1https://www.mckinsey.com/mgi/our-research/asia-on-the-cusp-of-a-new-era
2https://www.bcg.com/publications/2024/jobs-national-security-and-future-of-trade
